PacifiCorp Anticipating Earnings Shortfall
PacifiCorp said last week it expects its third-quarter earnings
will be 50% below securities analysts' expectations of $0.41/share
and its annual earnings will be significantly below analysts'
forecast of $1.27 per share.
The company said a significant decline in profit margin on U.S.
regulated sales is expected to take a bite out of third-quarter
earnings. Increased power sales, both retail and wholesale,
unexpected outages at certain of the company's lower-cost
generating plants and the lack of low-cost hydro resources in the
region forced PacifiCorp to make unanticipated higher cost power
purchases to meet wholesale and retail sales demand. Earnings also
are expected to take a hit from increases in purchased power costs
in the company's Australian electric business and the continued
decline in the exchange rate between the U.S. and Australian
dollar. The company also took a hit from its failed bid for British
utility giant The Energy Group.
Moreover, the Utah Division of Public Utilities (DPU) is
proposing adjustments in PacifiCorp's general rates case that, if
accepted by the Utah Public Service Commission (PSC), could result
in a $57.5 million reduction in customer prices. Any required
adjustments to customer prices would be retroactive to February
1997. The adjustments include a proposed reduction of the company's
authorized rate of return on equity to 10%, removal of certain cost
items from the company's filed financial results for 1997 and other
financial adjustments. Other intervening parties have proposed
similar types of adjustments that could result in an even larger
reduction of customer prices. PacifiCorp has requested a $6.7
million reduction in customer prices and proposes a new authorized
rate of return on equity of 11.25%. A final order is expected from
the PSC by the end of the year.
Meanwhile, the company is analyzing proposals from parties
interested in acquiring its electric distribution assets in
California. It signed an agreement last Thursday to sell its
Montana service territory to Montana-based Flathead Electric
Cooperative, which serves 12,000 customers in the state. Financial
details of the agreement were not disclosed.
California and Montana represents about 6% of PacifiCorp's
business. Observers have suggested the bad news and proposed sale
of its operations in two states may be a precursor to a sale of the
company, but PacifiCorp has denied those rumors.
PacifiCorp stock prices fell $1.88 (8%) to $21.19/share last
Thursday in trading following the announcement.
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